A top-tier research professional's hand-picked selection of documents from academe, corporations, government agencies (including the Congressional Research Service), interest groups, NGOs, professional societies, research institutes, think tanks, trade associations, and more.

The conventional view of the U.S. economy, and of state economies, is as static entities which change principally in size (growing in normal times and contracting during recessions). But in fact, state economies are constantly evolving complex ecosystems. Indeed, U.S. state economies of 2014 are not just larger but different than the state economies of 2013. On any given day this year each state will on average be home to businesses that receive 12 patents, release nine new products and introduce nine new production processes, while about 32 firms will go out of business and another 32 will be launched. Firms in some industries will get bigger (the average number of workers in non-store retailers—e.g., the Amazon.coms of the world—grew 0.03 percent every day in 2013) while some will get smaller (the average size of data processing, hosting, and related services shrank 0.07 percent every day in 2013, despite the emergence of cloud computing). Understanding that we are dealing with evolving rather than static state economies has significant implications for state economic policy.

The challenge for state economic development is to encourage evolution. This means helping the states’ traded sector companies to both win in advanced technology sectors and to slow the loss of more mature industries to lower cost locations. But evolution also means that government should not only not erect barriers to natural evolutionary loss (e.g., the loss of output of some firms and industries coming from disruptive technological change), it should actively remove barriers to such disruption. This means reducing the regulation and other protections that incumbents (big or small) face vis-à-vis more entrepreneurial (big or small) innovators. And it means both encouraging innovation through smart state technology-based economic development strategies and programs while also ensuring a tax and regulatory environment that supports state competitive advantage. In short, to be well positioned to drive economic evolution, state economies need to be firmly grounded in what can be called “New Economy” success factors, which assess states’ fundamental capacities to successfully navigate the shoals of economic evolution.

The 2014 State New Economy Index builds on six prior State New Economy Indexes published in 1999, 2002, 2007, 2008, 2010 and 2012. Overall, the report uses 25 indicators broken up into five key areas that best capture what is new about the New Economy:

Knowledge Jobs

Globalization

Economic Dynamism

The Digital Economy

Innovation Capacity

The state that is farthest along on the path to the New Economy is Massachusetts, as it has been in all previous editions of the State New Economy Index. Boasting a concentration of software, hardware, and biotech firms supported by world-class universities such as MIT and Harvard, Massachusetts survived the early 2000s downturn and was less hard hit than the nation as a whole during the Great Recession in terms of job growth and per-capita income growth. As in the 2012 Index, Massachusetts shares the top quartile with Delaware, California, Washington, and Maryland.

Indian economic growth in 2014 is expected to come in at less than 5 percent—the lowest level in over a decade—potentially signaling the end to 20 years of robust economic development often known as the “Indian Economic Miracle.” While the recent global economic downturn has played a part, a major factor in India’s economic slowdown has been the loss of momentum for continued economic and trade liberalizing reforms. In recent years this has been replaced by an economic development approach that has prioritized expanding domestic manufacturing and import substitution rather than across-the-board productivity growth, which has in part contributed to India’s recent embrace of several trade-distorting “innovation mercantilist” policies.

With national elections now underway, this report details the evolution of India’s post-independence economic policies and explains how the liberalizing reforms of the early 1990s spurred two decades of turbocharged growth. It explains how that success is increasingly threatened by innovation mercantilist policies—such as Preferential Market Access (PMA) rules for government procurement of ICT products and compulsory licensing of biopharmaceutical intellectual property—designed to promote selected domestic industries, even at the expense of other Indian industries and Indian consumers. But while such policies may seem beneficial in the short-term, they will ultimately prove counterproductive, by hampering domestic productivity, lessening India’s attractiveness to foreign direct investment (FDI), and potentially leading to retaliatory measures by other nations that would imperil the global trading system.

Businesses, government agencies, and non-profits in countries around the world are transforming virtually every facet of the economy and society through innovative uses of data. These changes, brought about by new technologies and techniques for collecting, storing, analyzing, disseminating, and visualizing data, are improving the quality of life for billions of individuals around the world, opening up new economic opportunities, and creating more efficient and effective governments. This list provides a sampling, in no particular order, of some of the most interesting and important contributions data-driven innovations have made in the past year.

Many jobs lost in the recession are never coming back and job creation is expected to be sluggish for years. This has created an imperative to develop new jobs, business models and industries. The states are on the front line of this effort and it is more important than ever for them to embrace innovation and the New Economy. In the 2010 State New Economy Index, ITIF shows how the states are doing in efforts to be competitive in the global, entrepreneurial, innovation- and knowledge-based New Economy. The report builds on previous reports that go back more than a decade, and uses 26 indicators to assess the states’ efforts to succeed in the innovation economy.

Massachusetts, Washington, Maryland, New Jersey, and Connecticut are the top five states at the forefront of the nation’s movement toward a global, innovation-based new economy, according to report released by ITIF and the Ewing Marion Kauffman Foundation.

The bottom five states were unchanged from 2008. Mississippi and West Virginia have lagged most in making the transition to the New Economy. The other lowest-scoring states include, in reverse order, Arkansas, Alabama and Wyoming.

The State New Economy Index uses 26 indicators to assess states’ fundamental capacity to successfully navigate the shoals of economic change. It measures the extent to which state economies are knowledge-based, globalized, entrepreneurial, IT-driven and innovation-based – in other words, to what degree state economies’ structures and operations match the ideal structure of the New Economy. The 2010 Index builds on four earlier Indexes, published in 1999, 2002, 2007 and 2008.

Regionally, the New Economy has taken the strongest hold in the Northeast, mid-Atlantic, Mountain West and Pacific regions; 13 of the top 20 states are in these four regions. In contrast, 18 of the 20 lowest-ranking states are in the Midwest, Great Plains and the South.